Healthcare M&A Developments
TM Capital Corp. is the Featured Chapter Sponsor of ACG Boston for October 2008.
by Michael S. Goldman, TM Capital Corp.
The past year has seen dramatic downturns in equity markets, financing markets, and in the underlying global economy. Markets related to housing, construction and consumer spending have been among those most severely impacted by these developments.
Chief among those sectors which have better weathered these conditions has been the healthcare industry. Fundamental demand in healthcare is driven by aging populations, advances in medical technology, and increased access to healthcare in developing countries. Each of these growth factors continues to advance despite global economic woes.
The relative strength of this sector is reflected in the fact that in 2008 the S&P Healthcare Index has maintained its value better than all but one of the ten industry categories which together comprise the S&P 500. This has resulted in relatively robust activity in healthcare mergers and acquisitions, which have not shared in the general downtrend in M&A activity.
While overall M&A activity has declined dramatically this year, with the number of transactions down by 16% and the value of deals falling by 35%, healthcare M&A has remained relatively stable, with volume decreasing by less than 1% and value actually increasing by 10%. Industry transaction activity has been broad-based, with particular strength in the biotech, medical device, and diagnostic sectors.
The healthcare M&A market will not remain immune from the overall financial environment, as financial sponsor acquirors will continue to be limited in their ability to arrange debt financing for transactions. However, strategic purchasers will continue to be driven to pursue acquisitions by their desire for new technology, market share gains, and global expansion.
Strategic acquirors will therefore play an outsize role in healthcare M&A heading into 2009, but purchase price multiplies will likely be constrained, as these acquirors note the decrease in their own share prices and lower trading multiples across the industry. Some owners may choose to retain their businesses rather than sell into this more challenging environment.
Our firm, TM Capital Corp., continues to see strong activity in healthcare transactions despite the general market declines. Our buy-side healthcare clients continue to pursue strategic opportunities which can be acquired at attractive values in the current market, while our sell-side healthcare clients recognize the unique strategic benefits certain acquirors can provide and the relative strength of healthcare valuations.
Michael S. Goldman is a Managing Director and founder of TM Capital Corp., an investment bank active in healthcare and other sectors with offices in New York, Boston and Atlanta. Mr. Goldman is also a member of the Board of Directors of Immucor, Inc. (NASDAQ: BLUD), a global leader in blood transfusion diagnostics.
